The Defence department's contractors are now costing almost $2 billion a year

Labor senator Penny Wong demanded to know why it was costing so much more as the department's chief financial officer Steven Groves revealed the total cost of contractors had risen to $1.873 billion that the senator observed could well reach $2 billion next year.

"This goes to value for money, doesn't it?" Senator Wong asked the officials.

Defence's departmental secretary Greg Moriarty confirmed to an estimates hearing on Wednesday the APS staffing cap imposed on the organisation was a driving factor behind its increasing use of external workers.

"We've always had a blended workforce [and] the work is growing," Mr Moriarty said.

"We're doing a lot of additional work on ship building, COVID-19 response, guided weapons initiatives ... all of these are very important initiatives. We need to meet the government's priorities, and we'll need to grow the workforce [to do them]."

The department's workforce census in March found it has 25,000 outsourced service providers, 6810 contractors and 314 consultants. Its APS employees number just 16,000 in comparison.

"The growth is driven by both the specialist expertise and the nature of the market we're operating in - a lot of our contractors are in those specialist fields around ICT," Mr Groves said.

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Mr Groves confirmed a report from the Australian Strategic Policy Institute that identified a $122 million dollar a day drain on the department's budget from contractors was correctly calculated, but did not agree with its conclusions as the average costs per contractor could not be calculated from the published figures of total cost per year and a snapshot of contractor headcount at a point in time.

The department committed to determining what its cost per contractor comes to.

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